TaxTMI 
TaxTMI 
2013 (9) TMI 940
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....Bangalore, invoking the provisions of sections 13(4) and 14 of the Act, consequent upon the notice issued under section 13(2) of the Act. Since the petitioners had failed to repay the debt to the respondent-bank, notice under section 13(2) of the Act was issued to the first petitioner on July 2, 2008, who is the principal borrower as well as to the second petitioner who is the guarantor for the loan of Rs. 20 lakhs which was disbursed subject to deposit of title deeds by entering into a registered mortgage deed dated January 24, 2006. The said notice was issued on the premise that there was non-repayment of the loan. The same was replied to on August 3, 2008. 3. The grievance of the petitioners is that after receipt of the reply, the respondent-bank without complying with the procedure prescribed under section 13(4) of the Act took steps under section 14 for the purpose of taking possession. More particularly, the contention of the petitioners is that possession was sought to be taken without issuing any prior notice. Therefore, the order of the Deputy Commissioner/District Magistrate dated December 27, 2008, was assailed in S. A. No. 283 of 2009 before the Debts Recovery Tribunal....
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....ioner/District Magistrate under section 14 who has directed physical possession of the property be taken. That in the absence of issuance of any notice as prescribed under the Rules before initiating action under sub-section (4) of section 13 of the Act and the District Magistrate also proceeding to pass orders for taking of physical possession without issuance of notice to the petitioners under section 14 of the Act is in total violation of the principles of natural justice. Therefore, learned counsel for the petitioners, relying on certain decisions, has contended that the action of the respondent-bank being a transgression in law, the same requires to be set aside. 8. Per contra, counsel for the respondent-bank has sought to justify the action initiated by the bank by stating that section 13 or the Rules do not contemplate issuance of notice before taking possession, but after the possession is taken, notice would be issued prior to sale of the secured asset and therefore, there is no infraction of the Act or the Rules. 9. Before proceeding to answer the issue raised in this writ petition, it would be useful to extract sections 13, 14 and 17 of the Act and rules 4 and 8 of the....
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....g the right to transfer by way of lease, assignment or sale for realising the secured asset : Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt : Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c)appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor ; (d)require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (6) Any transfer of secured asset after taking....
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...., may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act : Provided also that the liquidator referred to in the second proviso shall intimate the secured creditor the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator : Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator : Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any. Explanation.-For the purposes of this sub-section,- (a)'record date' m....
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....ed creditor. (2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary. (3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority. 17. Right to appeal.-(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken : Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower. Explanation.-For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or object....
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....h application made under sub-section (1). (6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any part to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal. (7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made thereunder. The Security Interest (Enforcement) Rules, 2002 8. Sale of immovable secured assets.-(1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix-IV to these rules, to the borrower and by affixing the posses....
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....money as may be stipulated by the secured creditor ; (f)any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. (7) Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the website of the secured creditor on the internet. (8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing." 10. Sub-section (1) of section 13 begins with a non obstante clause which enables the secured creditor to enforce any security interest created in its favour without the intervention of the court or the Tribunal in accordance with the provisions of the Act. Sub-section (2) of section 13 prescribes the issuance of a notice granting a period of 60 days' time from the date of the notice for the discharge of the liabilities to the secured creditor by the borrower, failing which the secured creditor is entitled to exercise all or any of the rights under sub-section (4). The contents of notice are mentioned in sub-section (3) of section 13. Sub-sectio....
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.... the case may be, on such request being made can take possession of such assets and forward such assets and documents to the secured creditor. Under sub-section (3) of section 14, it is stated that the action of the Chief Metropolitan Magistrate or the District Magistrate shall not be called in question, in any court or before any authority. 12. Section 17 prescribes the right of appeal to any person (including a borrower), being aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under Chapter III, by making an application to the DRT having jurisdiction in the matter within forty-five days from the date on which such measures have been taken. The DRT can consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security is in accordance with the provisions of the Act and the rules. If the said actions are not in accordance with the requirements of the Act and the rules, the DRT can, inter alia, order restoration of possession of the secured assets to the borrower by holding that the measures taken are invalid and thereby restor....
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....ey are sold or otherwise disposed of. Sub-rules (5) to (8) of rule 8 and as well as rule 9 pertain to the steps to be taken prior to and during the process of sale of the secured assets. 14. On a conspectus reading of sub-section (4) of section 13 and section 14 with rule 8, the question that would arise is, as to the stage at which notice under rule 8 would have to be issued, as the contention of counsel for the respondent is that the notice regarding possession would be issued after an order under section 14 is passed and possession is taken and before sale. When once there is non-compliance of the demand made under sub-section (2) of section 13, steps could be initiated under sub-section (4) by taking possession of the secured asset. The question is, as to whether the borrower ought to know as to when exactly possession of the secured asset would be taken, when once the demand under sub-section (2) of section 13 is not complied with by the borrower. Having regard to sub-section (13) read with sub-section (2) of section 13 would imply that the receipt of notice under sub-section (2) results in a virtual attachment of the secured asset. If the demand made in sub-section (2) of se....
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....reditor. Also a person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower can pay the secured creditor, so much of the money as is sufficient to pay the secured debt as per clause (d) of sub-section (4) of section 13 read with sub-section (5) thereof. We have also borne in mind the fact that on an application being filed under section 14 of the Act before the Magistrate, there is no provision for issuance of notice to the borrower before an order to take possession is issued. We are, therefore, of the considered view that before initiating action under sub-section (4) of section 13 of the Act, the issuance of notice as per sub-rules (1) and (2) of rule 8 has to be complied with indicating the date on which possession of the property would be taken from the borrower by the secured creditor. If on the said date possession of the secured asset cannot be taken or it is not surrendered by the borrower, then the secured creditor can take recourse to section 14 of the Act and take possession of the secured immovable property, of course, we hasten to add that the notices issued under sub-rules (1) and (2) of rule 8 ....
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....d to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. It will only be in fulfilment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for....
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.... a duty, in the circumstances of the case and the provisions is inherent under section 13(2) of the Act. The next safeguard available to a secured borrower within the framework of the Act is to approach the Debts Recovery Tribunal under section 17 of the Act. Such a right accrues only after measures are taken under sub-section (1) of section 13 of the Act." (b)In the case of Transcore v. Union of India [2007] 73 SCL 11 (SC), the Supreme Court has discussed the inter play of sections 13(4) and 14 read with rules 8 and 9 in the following manner (page 41 of 135 Comp Cas) : "The word 'possession' is a relative concept. It is not an absolute concept. The dichotomy between symbolic and physical possession does not find place in the Act. As stated above, there is a conceptual distinction between securities by which the creditor obtains ownership of or interest in the property concerned (mortgages) and securities where the creditor obtains neither an interest in nor possession of the property but the property is appropriated to the satisfaction of the debt (charges). Basically, the NPA Act deals with the former type of securities under which the secured creditor, namely, the bank/FI obt....
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....ion 13(4) taken by the secured creditor are not in accordance with the provisions of the Act, it may by order declare that the recourse taken to any one or more measures is invalid, and consequently, restore possession to the borrower and can also restore management of the business of the borrower. Therefore, the scheme of section 13(4) read with section 17(3) shows that if the borrower is dispossessed, not in accordance with the provisions of the Act, then the DRT is entitled to put the clock back by restoring status quo ante. Therefore, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorised officer taking possession. As stated above, the NPA Act provides for recovery of possession by non-adjudicatory process, therefore, to say that the rights of the borrower would be defeated without adjudication would be erroneous. Rule 8, undoubtedly, refers to sale of immovable secured asset. However, rule 8(4) indicates that where possession is taken by the authorised officer before issuance of sale certificate under rule 9, the authorised officer shall take steps for preservation ....
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....er, section 14 had been invoked. In the said case, it was held that guarantor could also avail the remedy provided under section 17 of the Act. (d)Similarly, in the case of Kaniyalal Lalchand Sachdev v. State of Maharashtra [2011] 106 SCL 1 / 9 taxmann.com 215 (SC) while holding that an efficacious, alternative remedy is provided under section 17 of the Act, to assail an action under sub-section (4) of section 13 of the Act, it is noticed that after the issuance of notice under sub-section (2) of section 13, a public notice in the newspapers had been issued regarding the same and thereafter, application was filed under section 14 of the Act, for taking possession of the secured assets. After an order was passed under section 14, another notice was issued to the borrowers to handover possession which was challenged in the writ petition. While holding that a writ petition was not maintainable, the Supreme Court nevertheless noted that newspaper publication prior to taking of possession had been issued in the said case. (e)In the case of Authorised Officer, Indian Overseas Bank v. Ashok Saw Mill [2009] 94 SCL 73 (SC) it has been held thus (page 336 of 162 Comp Cas) : "The intention....
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....ny authority of law. Thus, the entire action of opposite party No. 6 is unauthorised, illegal and bad in law." (g)In the case of Mrs. Sunanda Kumari v. Standard Chartered Bank [2007] 135 Comp Cas 604 (Karn) (Division Bench of this court) has dealt with the aspect as to whether the Magistrate has to issue notice before passing an order under section 14 of the Act and has answered in the negative (page 608 of 135 Comp Cas) : "Regarding the question whether the Magistrate is required to issue notice to the borrower before passing an order under section 14, we are of the view that, in the absence of any provision in the Act or the Rules framed thereunder requiring such notice, the Magistrate is not required to issue any notice to the borrower before passing an order under section 14. Learned counsel for the petitioners contended that even though there is no specific provision in the Act or the rules requiring such notice, the principles of natural justice require that a notice should be issued by the Magistrate before passing an order under section 14. We are not inclined to agree with the above contention. The borrower is given a notice under sub-section (2) of section 13 which spec....